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Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables

  • Davide Furceri

    (OCDE - Organisation de coopération et de développement économiques - OCDE)

  • Aleksandra Zdzienicka-Durand

    (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

The aim of this work is to assess the short and medium term impact of banking crises on developing economies. Using an unbalanced panel of 159 countries from 1970 to 2006, the paper shows that banking crises produce significant output losses, both in the short and in the medium term. The effect depends on structural and policy variables. Output losses are larger for relatively more wealthy economies, characterized by a higher level of financial deepening and larger current account imbalances. Flexible exchange rates, fiscal and monetary policy have been found to be efficient tools to attenuate the effect of the crises. Among banking intervention policies, liquidity support resulted to be the one associated with lower output losses.

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Paper provided by HAL in its series Post-Print with number halshs-00491089.

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Date of creation: 2010
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Handle: RePEc:hal:journl:halshs-00491089
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